A First Look at Economics
6. Disagreements in economics

"Just tell me why there is unemployment. I'll memorize the answer and give it back on the exam." Yeah, right.

Fortunately, economics is not a multiple-choice subject. It's a university subject, in which there is often more than one legitimate way of answering. It's a research discipline, evolving and forever unfinished. So economists disagree---somewhat---about the causes of unemployment. And so you as a student need to see the claimed explanations in dialogue.

Until the 1920s astronomers did not realize that there was more than one galaxy. Until the 1960s many American geologists did not realize that the continents drifted, and sneered at geologists who did. In 2006 astronomers decided after many years of believing the contrary that Pluto is in fact not a planet. So the disagreement of economists is no scientific scandal. Modern economics contains several distinct traditions of thought, each with a different vision of how a market economy typically works, and often therefore different explanations for something like unemployment.

One is the new classical school, also called neoclassical. New classicals, the majority of American economists these days, believe that markets work well and government interventions do not. It's called "new" because the "old" classical economists such as David Ricardo (1772-1823) believed just this: let the market work, laissez faire. Hands off. The old classicals were challenged by that bright English fellow we mentioned (hint: rhymes with "brains"; 1883-1946). So nowadays the minority New Keynesian school believes that market economies do not work perfectly well. It believes therefore that government interventions can help. Hands on. A New Keynesian economist you may have heard of is Paul Krugman, a columnist for the New York Times. The Austrian school agrees with the new classicals' pro-market, anti-government stance but rejects their assumptions about the "perfect" nature of human knowledge, behavior, markets. It's called "Austrian" because it originated literally in the country of Austria, in particular in Vienna in the late 1800s, though most of its current members are Americans. George Mason University, for example, has become a distinguished home for Austrian and other free-market economists. Free marketers who don't think the market works smoothly? Yes: while the Austrians doubt that a market economy is perfect, they believe that Keynesian efforts to engineer full employment will only worsen it.

Economists of the Post Keynesian (different from "New Keynesian"!) and radical or Marxian schools agree with the Austrian emphasis on the non-mechanical nature of markets and human behavior---in fact, they think market economies are doomed to crisis. And they often share the Austrian skepticism about the sweetness of governments. But Post Keynesians and radicals disagree with the Austrians and many of the other schools about the ultimate goodness of a free-market, capitalist economy. Such an economy, the radicals say, produces unjust outcomes in the distribution of income (favoring the rich, as the Post Keynesians stress), and reproduces the evils of exploitation by class, race, and gender.

Other schools of economics include institutional economics (associated prominently with the name John R. Commons, 1862-1945), which emphasizes the legal and social framework of an economy, new institutional economics (associated with the economic historian Douglass North, b. 1920), which attaches the legal and social framework to neoclassical assumptions, feminist economics (Nancy Folbre, Julie Nelson, b. 1957), which emphasizes the role of women in every economy. And there is social economics, Christian economics, and cognitive economics, among others, all part of the rich conversation---although it must be said, as we just did, that by far the dominant school in American departments of economics is the new or neoclassical. Like all dominant schools of thought, it has a tendency to sneer at the others.

Schools there are but economists agree on many things that outsiders to economics don't grasp. They agree on accounting truths such as that you can't subsidize everybody and collect enough revenue or that you can't tax "corporations" without taxing people. They agree that the "Industrial Revolution" of the past two centuries has gigantically enriched the countries that have participated in it. They agree that central planning of a totalitarian sort has worked very poorly. They agree that the central question in modern economics is, as Adam Smith put it, the nature and causes of the wealth of nations. And they agree on the most distinguishing feature of economics as a science and of economies in action: prices matter.